When you decide to rent a property, the big question always arises: How can you protect yourself against possible non-payment or damage caused by the tenant? This is where tenant default insurance comes into play – a tool that protects landlords. But who pays for it, the tenant or the landlord? We answer these questions.
Who benefits from tenant default insurance?
The landlord, needing to protect themself against possible non-payment by the tenant, is the party that most benefits from acquiring this type of insurance.
However, it is true that both parties – landlords and tenants – can benefit. For landlords, it provides financial protection against non-payment of rent and can cover legal expenses related to evictions. For tenants, such insurance can make them more attractive to landlords, making it easier to find housing and reducing the amount of deposit required, as well as avoiding legal problems in case of financial hardship.
How is the tenant default insurance taken out?
Some criteria must be met when taking out tenant default insurance. Since the insurance company will be responsible for covering unpaid rent and damage to the property, they need to prove the tenant's solvency by carrying out what is known as a solvency analysis.
To do this, the insurer will verify that the tenant does not appear in any debt collection file. They will also check their employment contract, the income they receive and that the annual rent does not exceed 40-45% of their net income. To validate this information, the insurer will request the relevant documents from the tenant.
| If you want protection against possible non-payments, do not hesitate to consult the rental home insurance coverage. |
Who has to pay tenant default insurance?
It is best if the policy is in the owner's name. However, the responsibility for payment can be agreed between the parties. However, it is not advisable to have payments paid directly from the tenant's account, as if the tenant stops paying the rent, they will likely stop paying the insurance, too.
How much does it cost?
The tenant default insurance usually ranges between 3% and 5% of the annual rental price. For example, if a house is rented for €1,000, the owner would pay between €300 and €600. However, the price may vary depending on the insurance company and the type of product contracted.
Who takes out the tenant default insurance?
The landlord should contract the tenant default insurance policy, as they are guaranteed to collect if the tenant defaults. For obvious reasons, it is not appropriate for the tenant to take out insurance to cover their own non-compliance.
Although taking out a tenant default insurance policy is not compulsory, the Urban Leases Law (LAU) does allow additional guarantees to be taken out to ensure rent payment. Article 36.5 of the LAU regulates this policy, although it leaves many details, including who must pay the insurance, to the parties' discretion.
What guarantees does tenant default insurance offer?
idealista's tenant default insurance by ARAG offers guarantees that protect the landlord. Specifically, the insurance covers the legal defence of the landlord's rights to the insured property. It covers economic damages due to non-payment of rent by the tenant, as well as material damages that the tenant may inflict due to acts of vandalism, either to the contents or structure of the home. The main covers are:
- Defence and claims on lease contracts
- Defence in other insurance policies
- Criminal defence
- Claims for damages not linked to contracts
- Claims for repair and maintenance service contracts
- Defence of housing rights
- Telephone legal advice
- Coverage for non-payment of rent, utilities and cleaning services
- Loss of rent due to fire
- Damage due to vandalism to structure and contents
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